US Producer Prices Post Sharpest Drop in Five Years, Weighed Down By Trade And Services Margins

April’s decline in the Producer Price Index followed no change in March and a 0.2% rise in February.

Prices paid to U.S. producers fell in April by the most in five years, a sign of easing inflation pressures that could influence Federal Reserve policymakers in the months ahead.

According to the Bureau of Labor Statistics, the Producer Price Index (PPI) for final demand declined 0.5% last month, the steepest monthly drop since April 2020. 

That follows a flat reading in March and a 0.2% increase in February. On a year-over-year basis, the index rose 2.4%.

The decline was driven entirely by a sharp drop in prices for services, which fell 0.7% – the largest monthly decrease since records began in 2009. 

More than two-thirds of that decline came from lower trade margins, particularly in wholesale sectors. Margins for machinery and vehicle wholesaling plunged 6.1%, while prices also fell for services such as portfolio management, software publishing, and airline travel.

In contrast, prices for goods were unchanged in April. Within that category, prices for goods excluding food and energy rose 0.4% but declines in food and energy prices offset that gain. Food prices fell 1.0%, while energy slipped 0.4%. Notably, egg prices dropped 39.4%.

Core PPI—which strips out food, energy, and trade services—edged down 0.1% in April, the first decline since 2020. Over the past year, core PPI rose 2.9%.

The data could feed into the Federal Reserve's debate over whether further interest rate hikes are necessary. Fed Chair Jerome Powell said Thursday that the central bank has been reviewing parts of its rate-setting framework, given the shifts in the economic landscape since its last review in 2020.

Markets were mixed in morning trade. The SPDR S&P 500 ETF Trust (SPY) edged 0.09% higher, and the SPDR Dow Jones Industrial Average ETF (DIA) gained 0.2%.  Meanwhile, the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100, dipped 0.02%. 

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